Part 1.
COMPTROLLER OF PUBLIC ACCOUNTS
Chapter 3.
TAX ADMINISTRATION
Subchapter O. STATE SALES AND USE TAX
34 TAC §3.300
The Comptroller of Public Accounts proposes an amendment
to §3.300, concerning manufacturing; custom manufacturing; fabricating;
processing. The amendment incorporates legislative changes made to Tax Code, §151.3181,
by Senate Bill 1125, 77th Legislature, 2001. These changes provide manufacturers
with a new method of calculating tax on divergent use of manufacturing equipment
that occurs on or after October 1, 2001. The new method is based on a formula
that computes a divergent use percentage using either output or hours. The
amendment of subsection (d)(4) clarifies the types of power, supply, support,
and control equipment that qualify for exemption.
James LeBas, Chief Revenue Estimator, has determined that for the first
five-year period the rule will be in effect, there will be no significant
fiscal impact on the state or units of local government.
Mr. LeBas also has determined that for each year of the first five years
the rule is in effect, the public benefit anticipated as a result of enforcing
the rule will be in providing taxpayers with additional information regarding
their tax responsibilities. This rule is adopted under the Tax Code, Title
2, and does not require a statement of fiscal implications for small businesses.
There is no significant anticipated economic cost to individuals who are required
to comply with the proposed rule.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This amendment is proposed under Tax Code, §111.002, which
provides the comptroller with the authority to prescribe, adopt, and enforce
rules relating to the administration and enforcement of the provisions of
Tax Code, Title 2.
The amendment implements Tax Code, §151.3181.
§3.300.Manufacturing; Custom Manufacturing; Fabricating; Processing.
(a)
(No change.)
(b)
Manufacturer's responsibilities.
(1)
Collection of tax. Persons who are engaged in the business
of fabricating, manufacturing, processing, or custom manufacturing must collect
sales tax on the total sales price of the manufactured item or accept a resale
or exemption certificate in lieu of the tax. The sales price includes the
cost of materials, labor or service costs, and all expenses that are connected
with production. Persons who fabricate, custom manufacture, or process tangible
personal property that the customer furnishes, either directly or indirectly,
must collect tax on such fabricating, custom manufacturing, or processing
charge. Manufacturers shall pay or accrue sales or use tax on all items used
in the manufacturing process that do not qualify for exemption from tax. A
manufacturer who purchases tangible personal property tax free by means of
an exemption certificate or resale certificate and subsequently uses the item
for a nonexempt purpose
is responsible for tax as provided in subsection
(k) of this section.
[
(2) - (4)
(No change.)
(c)
(No change.)
(d)
The following items are exempted from the taxes imposed
by Tax Code, Chapter 151, if purchased, leased, or rented by a manufacturer
for storage, use, or consumption:
(1) - (3)
(No change.)
(4)
actuators, steam production equipment
(including water
purification equipment such as demineralizers and reverse osmosis units)
and its fuel, in-process flow through tanks, cooling towers, generators, heat
exchangers, transformers and the switches, breakers, capacitor banks, regulators,
relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators,
instrument transformers, and telemetry units that are related to the transformers,
electronic control room equipment, computerized control units, pumps, compressors,
hydraulic units,
boilers (including economizers, superheaters, waterwalls,
hoppers, feedwater heaters, condensers, pumps, air preheaters, draft fans,
pulverizors, primary crushers, secondary crushers, oil or gas burning equipment
that is related to the boilers),
and related accessories that are used
to power, supply, support, or control equipment that qualifies for exemption
under paragraph (2) or (6) of this subsection or to generate electricity,
chilled water, or steam for ultimate sale;
(5) - (18)
(No change.)
(e) - (j)
(No change.)
(k)
Divergent use.
(1)
A manufacturer who issues a resale certificate to purchase
tangible personal property tax free and subsequently uses the item for a nonexempt
purpose must remit the tax to the comptroller based on the purchase price
of the item or the fair market rental value of the item. See §3.285 of
this title (relating to Resale Certificate; Sales for Resale) and §3.346
of this title (relating to Use Tax).
(2)
A manufacturer who issues an exemption certificate to purchase
tangible personal property tax free and subsequently uses the item for a nonexempt
purpose is responsible for tax based on the divergent use. For divergent use
that occurs prior to October 1, 2001, a manufacturer owes tax based on the
purchase price or the fair market rental value of the equipment. See §3.287(e)
of this title (relating to Exemption Certificates). For divergent use that
occurs after September 30, 2001, a manufacturer owes tax based on the guidelines
that are provided in paragraph (3) of this subsection.
(3)
A manufacturer must remit tax in the following manner on
divergent use that occurs after September 30, 2001.
(A)
No tax is due if the divergent use occurs in any month
after the fourth anniversary of the equipment purchase date. Equipment that
is purchased before October 1, 1997, is not subject to tax on divergent use
that occurs after October 1, 2001.
(B)
Except as provided by subparagraph (C) of this
paragraph, a manufacturer owes tax on an item if the divergent use occurs
in the month of, or during any month before, the fourth anniversary of the
date of purchase. The amount of the tax that is due for the month in which
the divergent use occurs is equal to 1/48 of the purchase price multiplied
by the percentage of divergent use during that month multiplied by the applicable
tax rate when the divergent use occurs.
(i)
The 48-month period that is used in calculating divergent
use begins when the equipment is purchased.
(ii)
The amount of divergent use for a month can be measured
either in hours or by applicable output as follows:
(I)
the divergent use percentage for a month is
computed by taking the total divergent use hours of operation of the equipment
in a month and dividing that amount by the total hours of operation of the
equipment during the same month; or
(II)
the divergent use percentage for a month is computed by
taking the total output of the equipment during the period of divergent use
in a month and dividing that amount by the total output of that equipment
during the same month.
(C)
A manufacturer who uses equipment in a divergent manner
in the month of, or during any month before, the fourth anniversary of the
date of purchase owes no tax on that use if the divergent use percentage in
that month is 5.0% or less.
(D)
A manufacturer who purchases non-capitalized equipment
repair parts or consumables for equipment that is routinely used in both exempt
and nonexempt manners may elect to pay tax on the repair parts or consumables
by applying the divergent use percentage of the equipment as provided by paragraph
(2)(B) of this subsection for the month during which the manufacturer purchased
the repair parts or consumable items.
(E)
A manufacturer who purchases repair labor for equipment
may owe tax if the manufacturer uses the qualifying exempt equipment for both
exempt and nonexempt purposes. If the manufacturer was using qualifying equipment
in an exempt manner at the time when the repair was needed, then no tax is
due on the repair. If the manufacturer was using the qualifying equipment
in a nonexempt manner when the repair was needed, then tax is due on the purchase
price of the repair. If a manufacturer cannot determine whether the equipment
was being used in an exempt or nonexempt manner at the time of the repair,
then thee manufacturer may pay tax on the purchase price of the repair multiplied
by the divergent use percentage as provided by paragraph (2)(B) of this subsection
for the month in which the purchase of the repair service was made.
This agency hereby certifies that the proposal
has been reviewed by legal counsel and found to be within the agency's legal
authority to adopt.
Filed with the Office of
the Secretary of State on May 16, 2002.
TRD-200203047
Martin Cherry
Deputy General Counsel for Taxation
Comptroller of Public Accounts
Earliest possible date of adoption: June 30, 2002
For further information, please call: (512) 475-0387
34 TAC §3.327
The Comptroller of Public Accounts proposes an amendment
to §3.327, concerning taxpayer's bond or other security. Senate Bill
1123, 77th Legislature, 2001, increases the maximum amount of security that
the comptroller can impose on retailers. The proposed amendment incorporates
this legislative change in subsections (b) and (c). Other changes are proposed
to reflect current policy and to provide clarity.
James LeBas, Chief Revenue Estimator, has determined that for the first
five-year period the rule will be in effect, there will be no significant
fiscal impact on the state or units of local government.
Mr. LeBas also has determined that for each year of the first five years
the rule is in effect, the public benefit anticipated as a result of enforcing
the rule will be in providing taxpayers with additional information regarding
their tax responsibilities. This rule is adopted under the Tax Code, Title
2, and does not require a statement of fiscal implications for small businesses.
There is no significant anticipated economic cost to individuals who are required
to comply with the proposed rule.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This amendment is proposed under Tax Code, §111.002, which
provides the comptroller with the authority to prescribe, adopt, and enforce
rules relating to the administration and enforcement of the provisions of
Tax Code, Title 2.
The amendment implements Tax Code, §151.253.
§3.327.Taxpayer's Bond or Other Security.
(a)
Each
[
(b)
A person who applies for a tax permit may be required
to post a bond or security in an amount that is equal to the greater of $100,000
or four times the amount of the average monthly tax liability. An itinerant
vendor may be required to post a bond, but the minimum amount may not be less
than $500. For the purposes of this section, an itinerant vendor is a person
who does not operate any place of business as defined in §3.286 of this
title (relating to Seller's Responsibilities).
[
(c)
A permitted retailer who is or has been delinquent
in the payment of state or local sales or use taxes may be required to post
a bond or security in an amount that is equal to the greater of either $100,000
or four times the amount of the average monthly tax liability.
[
[(1)
Each applicant must post bond or security
in an amount equal to two times the amount of the average monthly tax liability.]
[(2)
If a bond amount for a person other than
an itinerant vendor is calculated to be less than $3,000, an initial bond
will not be required.]
[(3)
If a bond amount for an itinerant vendor
is calculated to be less than $100, an initial bond will not be required.
For the purposes of this paragraph, an itinerant vendor is a person who does
not operate any place of business as defined in §3.286 of this title
(relating to Seller's Responsibilities).]
(d)
If the comptroller determines at any time that the
amount of the bond on file is inadequate or if a permitted retailer is delinquent
in the payment of any state or local sales or use taxes, the comptroller may
require a new or additional bond to be posted.
[
[(1)
Monthly filers. A retailer reporting
on a monthly basis must post bond or security in an amount equal to two times
the amount of the retailer's average monthly tax liability.]
[(2)
Quarterly and yearly filers. A person
reporting on a quarterly or yearly basis must post bond or security in an
amount equal to three times the amount of the person's average monthly tax
liability.]
[(3)
Bond amounts calculated to be less than
$100. If a bond amount is calculated to be less than $100, bond will not be
required.]
[(e)
Recalculation of amount of bond required
under certain circumstances. If it is determined at any time that the amount
of bond on file is inadequate or that a person is delinquent in the payment
of any amount due, the comptroller may recalculate the amount of security
and require new or additional bond to be posted. Under no circumstances, however,
will the amount required exceed $50,000 or be less than $100.]
(e)
[
(1)
Acceptable types of security:
(A)
irrevocable assignments of accounts in banks, savings and
loan institutions, and credit unions, whose deposits are insured by an agency
of the United States government;
(B)
cash (personal checks are acceptable);
(C)
bank letters of credit
that
[
(D)
United States Treasury bonds, readily convertible to cash;
(E)
surety bonds.
(2)
Unacceptable types of security:
(A)
corporate stocks and bonds;
(B)
personal guarantees.
(f)
[
(g)
[
(h)
[
(i)
[
(1)
When
[
(2)
When a retailer applies for a new permit because of a change
in legal structure, the retailer
may be required to post a bond or security
as provided by
[
(3)
If, after the review, it appears that the interests of
the state will not be endangered by the new ownership, the comptroller may
determine that no new or additional bond is required.
(4)
If, however, it appears that there has been a substantial
change in ownership or that security is required to guarantee payment of taxes
by the new entity, the comptroller may require security in accordance with
the provisions of this section.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of
the Secretary of State on May 15, 2002.
TRD-200203006
Martin Cherry
Deputy General Counsel for Taxation
Comptroller of Public Accounts
Earliest possible date of adoption: June 30, 2002
For further information, please call: (512) 475-0387
Subchapter C. CLAIMS PROCESSING--TRAVEL VOUCHERS
must remit the tax to the comptroller based
on the purchase price of the item or the fair market rental value of the equipment
for the period of time during which the equipment is used for purposes other
than manufacturing. Reference should be made to §3.285 of this title
(relating to Resale Certificate; Sales for Resale), §3.287 of this title
(relating to Exemption Certificates), and §3.346 of this title (relating
to Use Tax).
]
Who must post bond or security. Every
] person who applies for a tax permit or who becomes delinquent in the
payment of any taxes, penalties, or interest must furnish security in the
amount
that
[
determined by
] the comptroller
determines
to be sufficient to protect the state against a failure to pay any
amounts or costs which may become due under the state, city,
special
purpose district, county,
and metropolitan transit authority sales and
use tax laws.
Conditional permit.
An applicant may be issued a conditional permit to do business for a period
of time not to exceed 14 days in order to furnish the security required.
]
The amount of bond or security required of persons applying for a tax permit.
]
The amount of bond
or security required of a person who currently is or has been delinquent in
payment of any amount due.
]
(f)
] Types of security.
which
]
are deemed by the comptroller to be sufficient in amount and secure;
(g) Assignments.
] An assignment
of either a savings account or a certificate of deposit in an institution
insured by an agency of the United States government must be irrevocable and
must be executed on an assignment form approved by the comptroller.
(h) Surety bonds.
] A surety bond
must be executed on a form approved by the comptroller and can be issued only
by a surety company chartered or authorized to do business in the State of
Texas. The bond shall constitute a new and separate obligation in the penal
sum named therein for each calendar year or a portion thereof while the bond
is in force. The bond must be executed by an attorney-in-fact appointed by
the surety. The appointing instrument must be properly notarized and physically
attached to the bond.
(i) Forfeiture.
] In the event of
forfeiture, the comptroller will notify the
holder of
[
person
holding
] the security and demand payment. The comptroller will also
notify the
permitted
retailer and demand that
a new
[
another
] or additional bond or security
for a specified amount
be furnished within 10 days of the date of such notice. [
The amount
of bond or security specified in the notice shall be fixed by the comptroller
subject only to the limitations stated in subsection (e) of this section.
] This notice shall become final at the expiration of 10 days. Failure
to comply with the requirements of the notice within the 10-day period will
result in the suspension of the retailer's tax permit.
(j)
] Retailer's bond or security
when ownership is changed.
The Tax Code, §151.201, requires
a retailer holding a tax permit to apply for a new permit when
] the
legal structure of
a
[
the retailer's
] business changes
, the retailer who holds a tax permit must apply for a new permit, as provided
by Tax Code, §151.201. Examples include, but are not limited to
[
; for example
], a change from a sole ownership to a partnership,
or a change from
a partnership to a corporation[
, etc
].
must comply with
] the provisions of this
section. The comptroller will review all
available records of the retailer's
history of payment of taxes
[
records and such other information
as the comptroller may require regarding the prior taxpaying performance of
the retailer.
]
Chapter 5.
FUNDS MANAGEMENT (FISCAL AFFAIRS)